Monitoring inflation when applying ASC 830

Jan 05, 2023
Audit Other accounting topics Financial reporting Inflation

Originally published Aug. 26, 2021. Revised Jan. 5, 2023

The Center for Audit Quality (CAQ) SEC Regulations Committee and its International Practices Task Force (the Task Force) periodically accumulates and discusses certain inflation data to assist companies in monitoring inflation statistics in connection with their determination of the inflationary status of countries in which they have operations. The most recent discussion document that represents the accumulation of information used to facilitate a discussion among the Task Force members is available on the CAQ's website.

The discussion document categorizes the countries based on their cumulative inflation rates (derived from the International Monetary Fund (IMF) World Economic Outlook Report Database for October 2022) and implementation guidance in Topic 830 of the Financial Accounting Standards Board's Accounting Standards Codification (ASC), Foreign Currency Matters. The countries included in the discussion document are those for which the IMF publishes data. Accordingly, there may be other countries that are not mentioned in the Task Force discussion document because the IMF does not include inflation data for all countries.

In the May 2022 Task Force discussion document, Ethiopia and Turkey were added to the list of countries with actual three-year cumulative inflation rates exceeding 100%. The most recent discussion document shows that Ghana, Moldova, Sierra Leone, Sri Lanka, and Ukraine have been added to the list of countries that have (a) projected three-year cumulative inflation rates between 70% and 100% in the current year, (b) a significant (25% or more) increase in inflation during the last calendar year, (c) a significant increase in projected inflation in the current year, or (d) projected three-year cumulative inflation rates greater than 100% in the next year.

The information in the discussion document may be helpful to financial statement preparers in applying ASC 830, in conjunction with their internal controls over financial reporting, to reach a conclusion on whether a country's economy should be considered highly inflationary. Financial statement preparers should be especially prudent when monitoring inflation data in countries where there is a concern about the reliability of the inflation data.

Subscribe to Financial Reporting Insights

Stay informed with our biweekly resource for recent financial reporting developments, including AICPA, SEC, PCAOB matters and other finance and accounting compliance considerations.